What future for decent work in Europe and Central Asia: Opportunities and challenges

Transcription

1 10th EUROPEAN REGIONAL MEETING 2 5 Oct ISTANBUL, TURKEY What future for Decent Work in Europe and Central Asia Opportunities and Challenges

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3 What future for decent work in Europe and Central Asia: Opportunities and challenges Tenth European Regional Meeting Istanbul, 2 5 October 2017 Report of the Director-General INTERNATIONAL LABOUR OFFICE

4 Copyright International Labour Organization 2017 First edition 2017 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Licensing), International Labour Office, CH-1211 Geneva 22, Switzerland, or by rights@ilo.org. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with a reproduction rights organization may make copies in accordance with the licences issued to them for this purpose. Visit to find the reproduction rights organization in your country. ISBN (print) ISBN (Web pdf) First edition 2017 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications and digital products can be obtained through major booksellers and digital distribution platforms, or ordered directly from ilo@turpin-distribution.com. For more information, visit our website: or contact ilopubs@ilo.org. Printed by the International Labour Office, Geneva, Switzerland

5 Preface The world of work is evolving rapidly, driven by factors such as demographic change, globalization, technological progress and climate change. People in Europe and Central Asia are deeply concerned by such megatrends that affect their daily working lives. Over the past centuries, the region has been at the heart of industrial revolutions and has produced social patterns that have inspired nations across the world. However, there is a general concern that former economic and social models may no longer work and that, if so, new responses will be needed. This Tenth European Regional Meeting provides a timely opportunity to look back to the Oslo Declaration adopted at our last Meeting four years ago, which called for the creation of positive pathways to overcome the negative economic, social and political consequences of the crisis and restore trust. Since then, the pace of growth in the region has remained below expectations, and the aftermath of the 2008 financial crisis is still very much on the agenda. Although national and subregional contexts may vary among the region s 51 countries, they share such characteristics as growing insecurities and inequalities. New jobs have been created, but often of a lower quality in terms of social protection, workers representation and the ability to provide for people s livelihoods, further contributing to raising inequalities. Moreover, international tensions have increased over recent years, triggering a large influx of refugees from war-torn countries into the region. At the same time, and despite persisting low oil prices, Eastern Europe and Central Asia are going through some very dynamic developments, including through the Eurasian Economic Union. The cumulative impact of recent developments has been a highly uncertain and volatile political environment, as evidenced by a number of elections and referendums across the region. Yet they have also triggered serious reflections on the future of the European Union, especially on reinforcing its social dimension. Such changes represent both opportunities and challenges for decent work in Europe and Central Asia. Decent work is a central tenet of the 2030 Agenda for Sustainable Development and the region needs to identify pathways to provide socially, economically and environmentally sustainable solutions for the future, as outlined in the 2030 Agenda and the Paris Agreement on climate change. In 2013, I proposed the Future of Work Centenary Initiative as one of seven ILO initiatives leading up to its centenary in The great majority of European and Central Asian countries have contributed actively to the Initiative and held substantive national and regional dialogues. This Meeting needs to add to that process and enable the perspectives of the region to be taken fully into account as the ILO prepares to enter its second century. v

6 What future for Decent Work in Europe and Central Asia: Opportunities and challenges I therefore hope that this Report, focused on the future of work in the region, can serve as a platform for the Meeting to engage in effective discussions and advance our joint efforts to create the future of work that we all want. Guy Ryder vi

7 Contents Page Preface... v Acronyms... ix Part I. What future for decent work in Europe and Central Asia: Opportunities and challenges... 1 Chapter 1. Labour market trends across Europe and Central Asia... 1 Sluggish economic growth and increasing challenges... 1 The challenge of jobs and decent work... 4 Standards and rights at work Social protection and occupational safety and health (OSH) Social dialogue Responding to the challenges Chapter 2. A wide range of policy responses Changing macroeconomic policy responses Employment policies: Between active measures and flexibility Social protection and income policies The changing context of labour market governance and social dialogue Moving forward on the policy challenges Chapter 3. Preparing the future of work Work and society Decent jobs for all The organization of work and production The governance of work Looking ahead Part II. From Oslo to Istanbul: Achievements Introduction ILO structure in Europe and Central Asia vii

8 What future for Decent Work in Europe and Central Asia: Opportunities and challenges I. Employment Employment promotion and youth Skills development and labour migration Enabling environment for sustainable enterprises (EESE) Supporting the creation of green jobs II. Social protection Developing and enhancing national social protection systems, including SPFs Strengthening occupational safety and health Fostering sustainable wage policies Supporting the transition from the informal to the formal economy III. Social dialogue Strengthening labour law, social dialogue and collective bargaining Labour inspection services Direct support to constituents IV. International labour standards Fundamental principles and rights at work and the promotion of international labour standards Eradicating forced and child labour Decent work for domestic workers and non-discrimination V. Partnerships International advocacy Partnerships with bilateral, multilateral and private development partners VI. Lessons learned/evaluations viii

9 Acronyms ALMP CEACR CEE CEELex CIS CIS+ CSEE DWCP EC ECB EECA EESE EU EU15 EU28 GDP ILO IMF MSME OECD OSH SDG SME SPF active labour market policy Committee of Experts on the Application of Conventions and Recommendations Central and Eastern Europe Central and Eastern European Labour Legislation database Commonwealth of Independent States Commonwealth of Independent States plus Georgia Central, South-Eastern and Eastern Europe Decent Work Country Programme European Commission European Central Bank Eastern Europe and Central Asia enabling environment for sustainable enterprises European Union European Union of 15 Member States European Union of 28 Member States gross domestic product International Labour Organization/Office International Monetary Fund micro-, small and medium-sized enterprise Organisation for Economic Co-operation and Development occupational safety and health Sustainable Development Goal small and medium-sized enterprise social protection floor ix

10 What future for Decent Work in Europe and Central Asia: Opportunities and challenges UN UNDAF UNDP VET WFP United Nations United Nations Development Assistance Framework United Nations Development Programme vocational education and training World Food Programme x

11 Part I. What future for decent work in Europe and Central Asia: Opportunities and challenges Chapter 1. Labour market trends across Europe and Central Asia 1. Four years after our last European Regional Meeting, held in Oslo in 2013, and eight years since the financial crisis, the recovery in employment and economic output is only gradually taking hold across the 51 countries of the region. 2. Recovery is still being held back by rising levels of inequality and uncertainty about the future. 1 There are concerns about the ability of member States in the region to create the conditions that will enable enterprises to generate a sufficient number of decent jobs, improve the quality of employment and ensure that the gains of economic growth are shared in a fair and inclusive manner The policy agenda agreed by the ILO s tripartite constituents in Oslo remains as relevant today as it was in It focuses on finding sustainable solutions, including fiscal consolidation and structural reform, while investing in jobs and the real economy. But the global context is now marked, not only by continued weak and uncertain economic growth, but also by tensions at the national and international levels. 4. It is against this background that the present Report outlines the challenges to the achievement of decent work in Europe and Central Asia. In so doing, it traces potential pathways for a prosperous and inclusive future with decent jobs for all. Sluggish economic growth and increasing challenges 5. Across the region, member States have experienced the crisis and the growing levels of uncertainty very differently. A small number of countries went through the crisis relatively unscathed, due to the nature of their economies or particular economic model. Others implemented policies that helped to mitigate the full impact of the crisis on their real economies and labour markets, by actively using fiscal stimuli and/or labour market policies to adjust to the unfolding crisis. 6. Economic growth forecasts across the region remain largely sluggish, with some encouraging signs of strong growth in some member States, and disappointing indicators of 1 See, for example, E. Stockhammer: Rising inequality as a cause of the present crisis, in Cambridge Journal of Economics (39(3), 2013), pp ; and Organisation for Economic Co-operation and Development (OECD): In it together: Why less inequality benefits all (Paris, 2015). 2 ILO: World Economic and Social Outlook: Trends 2017 (Geneva, 2017). 1

12 What future for Decent Work in Europe and Central Asia: Opportunities and challenges slow or negative growth in others. In the European Union of 28 Member States (EU28), growth is expected to reach an annual average of 1.8 per cent in , a slight increase from 1.6 per cent between 2012 and For the eurozone area, the annual growth rate is expected to be 1.7 per cent, compared with 0.5 per cent in Economic growth in the Russian Federation slowed markedly in , to an average of 0.4 per cent, due to the sharp fall in oil prices and the effects of economic sanctions. The Russian Federation entered a recession of -3.7 per cent in 2015 and -0.6 per cent in 2016, but has since returned to growth. Gross domestic product (GDP) is now expected to rise by 1.5 per cent in 2017 and 1.7 per cent in In Turkey, economic growth is forecast to continue at 3.0 per cent annually in the near future, as it has since 2012, although uncertainties have arisen due to political challenges since In the Western Balkans and Central Asia, the forecast is for economic output to grow at an average rate of 3.2 and 4.9 per cent, respectively, in The enduring effects of the crisis, and the concentration of employment growth in larger urban centres and among the better skilled (leading to rising inequality and working poverty), have generated feelings of insecurity, anxiety and frustration. These, in turn, have added to a highly uncertain and volatile political environment, as evidenced by the results of a number of elections and referendums across the region. 8. The outlook for economic growth in the short term will depend on various factors, including the level of aggregate demand. But in the medium term, slow and negative demographic growth and poor productivity performance will start to weigh on the economy throughout the region. 9. Demographic challenges in the region are mounting, as population growth slows to less than half of 1 per cent, while life expectancy increases. The combination of these trends is placing increased strain on the sustainability of social protection systems. The working population (15 64 years) across the region (east and west) has started to decline, and this trend will accelerate in the coming decades. However, population growth is expected to continue at a sustained level in Turkey and some countries of the Commonwealth of Independent States (CIS). 10. Part of the demographic decline may be offset by labour migration. But migration patterns in the region have become highly complex. Migration flows are now increasingly multidirectional and more difficult to monitor. In addition, some countries are acting as transit points for larger refugee flows. For example, new transit and migration routes for refugees have emerged through the Balkans, in addition to the long-standing routes in the Mediterranean. Between 2000 and 2015, the share of international migrants in the total population rose by 4 percentage points or more in 11 higher-income Western European countries, but there was no increase in lower-income Eastern and Central European countries. The proportion of migrants in the total population is 10 per cent or more in 17 of 3 European Commission (EC): European Economic Forecast: Winter 2017, Institutional Paper 048, Feb IMF: World Economic Outlook Update: A shifting global economic landscape (Washington, DC, 2017). 2

13 Labour market trends across Europe and Central Asia the European Union (EU) Member States. 5 Turkey is host to the largest refugee population in the region, numbering over 3 million in May Germany and the Russian Federation are hosting the largest number of international migrants (12 million each in 2015), followed by France and the United Kingdom (8 million each), and Italy and Spain (5.8 million each). 7 The countries of origin of these migrants differ from one host country to another, and largely reflect historical, geographical and cultural factors, as well as economic ties (such as membership of the EU, CIS and the Eurasian Economic Union). The influx of refugees in the region is creating new challenges and exacerbating existing labour and social integration issues. 11. Countries that have experienced a steeper downturn in GDP have seen a sharp increase in net outward migration. In particular, educated youth have sought opportunities abroad in reaction to the domestic labour market crisis. Some countries, especially smaller States in integrated economic zones, have also suffered from the outward migration of highly skilled labour. Conversely, there have been increases in net inward migration in Western and Northern Europe. Over one third of the nationals of Western Balkan and Baltic countries now reside abroad. Planned and well-managed migration and mobility policies are needed to achieve Sustainable Development Goal (SDG) 10.7, which calls for the facilitation of orderly, safe, regular and responsible migration and mobility of people. 12. The trend throughout the region of falling labour productivity (the amount of real GDP produced per hour of labour) will also weigh on future economic growth. Despite rapid advances in information technology, computing power and machine learning, labour productivity is trending downwards across the entire region. In contrast with , when labour productivity grew at annual rates of between 2 and 5 per cent, it slowed considerably in to 0.9 per cent in Turkey, 0.5 per cent in the EU, and turned negative in the Russian Federation in Only in Central Asia is the growth rate of labour productivity still around 3 per cent, which can be explained by catch-up effects. Low productivity growth has direct implications on future wage growth and fiscal revenue, and complicates debt reduction. Taken together, these factors will weigh on social mobility and cohesion and on the ability to reduce inequality. 13. Views diverge on the reasons for the overall fall in productivity. One likely cause is a lack of investment, which is a clear casualty of the protracted recovery. Investment as a share of GDP is significantly below pre-crisis levels in both the EU and Eastern Europe, despite the cost of capital being at a record low and profit margins having almost recovered their pre-crisis levels. Unless productivity picks up, GDP growth will remain slow. The underlying reasons for the fall in investment are likely to include depressed domestic demand, the absence of structural reforms in several countries and an uncertain outlook marked by rising tensions. 5 Eurostat: Foreign-born population by country of birth, Jan The data covers all EU Member States, as well as Iceland, Liechtenstein, Norway and Switzerland, which also all have a share of foreign-born population above 10 per cent. 6 Turkish Directorate-General for Migration Management, May United Nations: International Migration Report 2015, ST/ESA/SER.A/384 (2016). 8 The Conference Board: Total Economy Database, May

14 What future for Decent Work in Europe and Central Asia: Opportunities and challenges 14. These tensions can be seen in the outcomes of several recent elections and referendums, and in reactions to the refugee crisis. Dissatisfied voters have been turning against institutions and standing governments. This has been accompanied by a rising polarization of societies, distrust in institutions and political parties, and a growing scepticism towards regional integration and globalization processes. Anxieties about job security, and indeed security in general, rising income inequality and other obstacles to the improvement of living standards are surely important factors in this context. 15. Another view holds that the productivity gains from recent technological advances are yet to be realized. If historical patterns are maintained, we should see the positive effects on productivity and employment growth in due course. 16. The overall rate of income catch-up and convergence between countries remains far too slow in the region. However, the gap between low-to-medium income countries in Central and Eastern Europe (CEE) and high-income EU countries has narrowed. This has been driven largely by countries at lower-income levels, broadly from Central Europe eastward, growing at significantly faster rates than countries with higher incomes. But no such convergence has been observed within the eurozone, where the crisis has led to greater divergence between the core and the periphery. 17. All of this means that the policy-making environment is particularly challenging. National and international political leadership is needed to move towards achieving the objectives of the 2030 Agenda for Sustainable Development (2030 Agenda). Going forward, the role of tripartism and social engagement will take on greater importance in ensuring that everyone s voice is heard and that the future world of work includes decent jobs and protection for all. The challenge of jobs and decent work Recovery in employment rates, but not in hours worked 18. Across the region, employment has started to improve slowly once again, although with subregional differences. There are even some very positive signs in certain countries, where unemployment levels are at record lows, including for young workers. Yet, while unemployment has fallen, so has labour force participation in parts of the region. This means that job growth is only part of the story A gradual improvement in the employment situation has been noted in the EU. Data for the EU28 show that by mid-2016 total employment had regained its pre-crisis level with a lag of eight years. But total hours worked were still 2.4 percentage points lower than in 2008, with average hours worked (per week) lagging by 1.9 percentage points. This difference can be explained by a 3.7 million increase in the number of part-time workers in the EU since 2009, while full-time employment has fallen by 2 million jobs. On average, one in every five workers is now in part-time employment. The figures are one in three for women and one in ten for men. The share of part-time work increased most for young workers (15 24 years) and for men. 9 ILOSTAT: Labour force participation rate. 4

15 Labour market trends across Europe and Central Asia 20. Many of those who have returned to employment have done so in suboptimal conditions. The share of involuntary part-time work in the eurozone is just under one third of total part-time employment, and has risen three times more rapidly than total part-time employment, especially in the countries most severely affected by the crisis. 21. In the meantime, in the Commonwealth of Independent States plus Georgia (CIS+) countries, 10 which fared relatively well during the 2008 crisis, labour market shocks have come with a delay. Employment continued to grow, but at a slower pace, while unemployment rose in response to the difficult economic situation in Although there have been many positive and strong advances in the region, gender gaps remain widespread in terms of labour market participation, unemployment, involuntary part-time employment and income levels. In general, women are substantially less likely than men to participate in the labour market, and when they do, they are more likely than their male counterparts to be unemployed Enterprises and the private sector have continued to play a central role in generating value added and economic growth. Enterprises and entrepreneurship have contributed to the recovery in the region and have served as important drivers of employment growth. While the crisis affected firms of all sizes, micro-, small and medium-sized enterprises (MSMEs) 12 have tended to experience the negative effects of the crisis much more severely than larger ones, although with substantial variations between countries and sectors. Key challenges faced by enterprises have included: weak aggregate demand; difficulties in accessing credit and financial services, despite low interest rates; challenges in finding workers with the right skills in a rapidly changing environment; legal and regulatory barriers to establishing businesses; and uncertainty regarding the rule of law and secure property rights in some countries. 13 Access to finance has been a particular challenge for MSMEs, which are often dependent on bank lending for their financial needs, while larger firms can often finance their research and development and capital investment through corporate savings, which have increased significantly across the region. 14 Despite these challenges, and with growing uncertainties caused by Brexit, trade disputes, the emergence of new political forces and geopolitical tensions hampering investment, there are many growth opportunities for innovative enterprises. Business opportunities are also being seized in the new and emerging market for environmentally and socially sustainable solutions, in response to the drivers of change that will be further elaborated in the third chapter of this 10 Throughout the text, for analytical purposes, the CIS+ includes all Member States of the Commonwealth of Independent States, the two associate States Turkmenistan and Ukraine, as well as Georgia, which has withdrawn from membership. 11 ILO: World Economic and Social Outlook: Trends 2017 (Geneva, 2017). 12 MSMEs are classified by the EU as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million, and/or an annual balance sheet total not exceeding 43 million. See: 13 These challenges have been confirmed by a number of national assessment reports undertaken using the enabling environment for sustainable enterprises (EESE) methodology. 14 For an overview of developments in corporate savings rates in the OECD since the 1980s, see P. Chen, L. Karabarbounis and B. Neiman: The global rise of corporate saving, National Bureau of Economic Research Working Paper No (2017). 5

16 What future for Decent Work in Europe and Central Asia: Opportunities and challenges Report. Especially in sectors of the digital economy, new forms of business and new jobs have sprung up in recent years, and demographic trends and climate change will create further opportunities for growth. Sources and types of employment 24. Many newly created jobs have similar characteristics. Most of the new jobs throughout the region are in market services (commercial activities, such as retail shopping, real estate and finance). Close to 10 million jobs were created in market services in The next most important sector is non-market services (publicly provided services), with close to 4 million jobs. Total employment in manufacturing remained flat, despite significant increases in Turkey and some EU countries. Agriculture continued to lose jobs in all subregions, although agricultural output has increased steadily in the Russian Federation since There is now a policy trend in the Russian Federation to foster import substitution and export-oriented production in all sectors, which can partly be seen as a reaction to EU trade sanctions and lower oil and gas prices. New drivers of economic growth in the country include agriculture, food processing, domestic tourism and chemicals. But greater investment and labour mobility will be needed to accelerate these structural changes. 26. In the South Caucasus and Central Asia, the labour market is now dominated by the services sector, which accounts for over 50 per cent of total employment. Informal employment remains high as a share of non-agricultural employment in several Central Asian and some Eastern European countries Half of total employment in the EU is in enterprises employing fewer than 50 persons. Micro-enterprises (up to nine workers) account for 93 per cent of all enterprises, 30 per cent of total employment and 21 per cent of value added. Large enterprises (250 workers or more) employ 33 per cent of the workforce and generate 43 per cent of total value added. There is therefore considerable polarization between where jobs are created mostly in small enterprises and where productivity is highest mostly in large enterprises. Employment is growing faster in small enterprises, and particularly in micro-enterprises. 28. The composition of the labour force has also changed. There are more women and older workers, and fewer younger workers in employment today than before the crisis. Several forces are at work here. Declining youth employment rates can be attributed to their high unemployment rates and greater participation in education, often as an alternative to searching for a job. The rising participation rates of older workers are a consequence of the changes in the pensionable age introduced over the past decade, and the more flexible working arrangements introduced for elderly workers. 29. Wage employment remains dominant across the region, with a share of 92 per cent in the Russian Federation, and an average of 85 per cent in the EU, 73 per cent in the Western Balkans and Turkey and 60 per cent in Central Asia (2015 figures). In , wage employment increased significantly in Turkey and Central Asia, and rose marginally in the new EU Member States. 15 ILO: Women and men in the informal economy: A statistical picture, second edition (Geneva, 2014). 6

17 Labour market trends across Europe and Central Asia 30. In Central Asia, wage employment is now rebounding, in contrast with the informal work and poor-quality self-employment that prevailed during the transition years. Nevertheless, the levels of the latter types of work remain high in the subregion. More needs to be done to formalize parts of the labour market, in line with SDG target 8.3, which calls for a reduction of informal employment with emphasis on encouraging the formalization of MSMEs. 31. In conclusion, despite mediocre economic growth, structural change has been rapid, with significant changes in the sectoral, age and gender distribution of the workforce. Persistent high unemployment in many countries 32. The unemployment rate in the region in early 2017 (the latest available figures when this Report was drafted) ranged from 3.9 per cent in Germany to above 25 per cent in parts of the Western Balkans. 16 The total number of unemployed persons in the region is estimated to be 35.6 million Unemployment has been falling slowly in most of the EU since 2014, and has remained stable in the Russian Federation at around 5.5 per cent. However, it has risen in most other Eastern European and Central Asian countries as a result of recent economic shocks. Although the trend seems to be slowly reversing in 2017, unemployment remains higher than pre-2014 levels. And the figures may not reflect the full reality, as unemployment rates are nominally lower in countries where unemployment benefits are low or absent altogether. Following an initial recovery after 2009, the Western Balkans have also seen an increase in unemployment since Within the EU, there is a clear north/east south/west divide. 34. The rise in unemployment in the EU after 2008 was primarily cyclical, and can be explained by the double-dip recession and the slow recovery since But there are two additional considerations. First, as noted above, structural change has continued unabated, with some economic sectors declining (agriculture and manufacturing) and others growing (mostly market services). Second, the longer the labour market remains depressed, the more the unemployed lose skills and employability. A labour market that is depressed over a long period tends to gradually transform cyclical unemployment into longer-term structural unemployment, with a growing mismatch between labour supply and demand, rather than just a cyclical decline in demand. This is demonstrated by certain characteristics of unemployment. 35. First, unemployment rates vary significantly within countries. Of the 276 regions in the EU, just over 20 per cent had an unemployment rate of half the EU average in 2015, while the rate was double the EU average in 10 per cent of them. 18 Countries with higher unemployment rates generally show greater diversity, especially between urban and rural areas. Similar diversity can be observed between the various regions of the Russian 16 Eurostat and the World Bank: Seasonally adjusted quarterly unemployment rate. 17 ILO: Trends Econometric Models, Nov Eurostat: Unemployment statistics at the regional level, see: 7

18 What future for Decent Work in Europe and Central Asia: Opportunities and challenges Federation, but less so in Central Asia, where informal employment is more common than open unemployment. 36. Second, the share of youth in total unemployment fell to 20.1 per cent in early 2017, down from 25 per cent in But this is still 3 points higher than the share of youth (15 24 years) in the working-age population. Young people are therefore still disproportionately affected by unemployment. 37. Third, the long-term unemployed (one year or more) account for a large share of the total approximately half of all unemployed in early Those out of work for two years or more account for 30 per cent of the unemployed. 38. Fourth, many of the unemployed are low skilled. Moreover, in (non-eu) Eastern Europe and Central Asia (EECA), unemployment is not uncommon among the higher skilled. Skills mismatches therefore exist throughout the region, with both under- and overskilling. The unemployment rate among the low skilled in the EU was nearly double the overall rate. The average share of low skilled (International Standard Classification of Education (ISCED) levels 0 2) 19 in total unemployed in the EU was 36.3 per cent in 2015, almost twice their share in the labour force as a whole. Some 29 per cent of all unemployed youth in 2015 had only completed basic education, and 52 per cent intermediate education. 39. Fifth, the crisis has hit migrant workers hard. The outflow of remittances from the Russian Federation dropped by 40 per cent between 2014 and In the EU, the employment rates of more recent migrants are well below those who are more established. And the unemployment rate among migrants from outside the EU was over twice the general unemployment rate. 40. The situation of young people (15 24 years) who are neither in employment, nor in education or training (NEETs) calls for particular attention. It is addressed by a specific SDG target (8.6). The share of NEETs across the region ranges from 5 per cent or fewer in the Netherlands and Norway to over 30 per cent in Albania and Armenia. In 44 countries for which data is available, the median value is 11.9 per cent. In nine countries, the figure is between 15 and 20 per cent, and it is above 21 per cent in another nine countries. There have been strong increases in Albania, Croatia, Cyprus, Greece, Italy and Romania over the period , and a steep decrease in Turkey Underemployment is also a persistent challenge, particularly in the eurozone. Combining the unemployed with those working part time, but who are willing to work additional hours, and those who are available and willing to work, but not seeking work discouraged workers gives an estimate of the available slack in the labour market. This slack was 18 per cent of the potential EU labour force in 2016, down from a peak of 20.8 per cent in early 2013, but still substantially higher than before the crisis (14.2 per cent). 21 For 19 UNESCO: International Standard Classification of Education (ISCED). 20 The steep decrease in Turkey is largely a result of rising enrolment in education over the past decade, with young people also continuing their education longer than in the past. This phenomenon is typical in economies transitioning to the secondary and tertiary sectors, and constitutes a catch-up effect. NEET rates are nevertheless higher than the regional average in Turkey. See OECD: Society at a glance 2016: OECD Social Indicators A spotlight on youth (Paris, 2016). 21 Eurostat: Seasonally adjusted data, population aged

19 Labour market trends across Europe and Central Asia youth, this rate is substantially higher, which is largely explained by enrolment in education, but has been increasing since the beginning of the crisis. 22 Divergent real wages across the region 42. Following several years of flat or falling real wage growth, average monthly real wages rose in 2015 by 1.9 per cent in the EU, and more strongly in Turkey. Within the eurozone, real wages grew by 2.2 per cent in Germany in 2015, but fell further in southern countries. The rise in real wages can be attributed to the modest recovery of economic growth and the low inflation rate. 43. In Greece, Hungary, Ireland, Italy, Portugal, Spain and the United Kingdom, real wages remained lower in 2015 than in In Greece, wages fell by 20 per cent, and there was also a steep fall in Ukraine in Real wages fell precipitously in the Russian Federation in 2015, before starting to grow very slowly once again in 2016 (plus 0.6 per cent). 44. In labour-exporting countries, such as Armenia, Kyrgyzstan, Tajikistan and Uzbekistan, remittances have declined in both absolute and relative terms as a result of the sharp devaluation of the rouble in They have recently recovered to predepreciation levels, but are still below the levels of Figure 1. Real average monthly wages, per cent annual change, EU28 and selected countries EU28 Russian Federation Azerbaijan Kazakhstan Ukraine Turkey Source: ILO: Global Wage Report 2016/ Eurostat: Statistics explained: People outside of the labour market (2016). 9

20 What future for Decent Work in Europe and Central Asia: Opportunities and challenges Rising inequality of earnings and income 45. Most of the available studies show that the fruits of economic recovery, where it has occurred, have not been evenly shared, and that inclusive growth remains elusive. The trend towards rising income inequality observed over recent decades has not been reversed. The data shows that incomes at the bottom of the distribution are still well below pre-crisis levels, while high and middle incomes had recovered much of the ground lost during the crisis. SDG target 10.1 calls specifically for higher income growth for the bottom 40 per cent of the income distribution to combat rising inequality. 46. The distribution of income in the region, as measured by the Gini coefficient, 23 ranges from 24.8 in Ukraine to 44.2 in the former Yugoslav Republic of Macedonia (the lower the number the greater the income equality). This is indicative of stark differences in inequality within and between countries in the region. The proportion of low-wage-earners (earning under two-thirds of median hourly earnings) was 17.5 per cent in the EU28 in The incidence of low-wage-work was low in Nordic countries and Belgium (5 6 per cent), and significantly higher in CEE, and in Germany, Ireland and the United Kingdom (21 25 per cent). 47. Lower inequality can have a range of positive social and economic effects, including increased demand and higher growth. 24 Wage inequality reflects not only the characteristics of workers individually; it is also rooted in gender, enterprise size, type of contract and sector of activity. In Europe, women account for 50 to 60 per cent of all employees in the three lowest pay deciles, but only 20 per cent of the highest paid 1 per cent. The wage gap also appears to be increasing gradually, as individuals earn higher wages. Wage inequality within enterprises accounts for almost half of total wage inequality Gender equality is at the core of the SDGs. At least 24 explicit gender targets and indicators are largely aimed at achieving equality of opportunity. The most important is SDG 5, which calls for an end to all forms of discrimination against all women and girls everywhere (target 5.1), and women s full and effective participation and equal opportunities for leadership (target 5.5). Segregation by gender is commonplace and is often a symptom of underlying differences in opportunities for women and men, particularly in terms of access to different types of jobs. Addressing these gender gaps would have individual and economic benefits There is evidence that the fall in collective bargaining coverage has contributed to wage inequality. In many countries, the incomes of those covered by collective agreements rose in line with productivity, while real wages stagnated or declined for those 23 The Gini coefficient measures the dispersion of incomes or wealth in a country, and is most commonly used to measure inequality. A value of 100 would imply that all wealth is owned by one person, and a value of 0 that every person in a country owns exactly the same amount of wealth. 24 See, for example, J. Ostry, A. Berg and G. Tsangarides: Redistribution, inequality, and growth, IMF Staff Discussion Note (Washington, DC, 2014); and T. Piketty: Capital in the twenty-first century, (Belknap, 2014). 25 ILO: Global Wage Report 2016/17: Wage inequality in the workplace (Geneva, 2016). 26 ILO: World Employment and Social Outlook: Trends 2017, op. cit. 10

21 Labour market trends across Europe and Central Asia not covered by collective agreements. 27 Some of these differences are due to the predominance of collective bargaining in sectors where productivity growth may be higher. But differences are also visible within sectors if collective agreements are not extended beyond core employees. The decline of industrial manufacturing in the region has contributed to a rise in income inequality. In many countries, it has gone hand in hand with a decline in collective bargaining and its underlying principle of profit sharing between workers and employers, which remains stronger in industry than in the service sector. SDG target 9.2 seeks a solution through inclusive and sustainable industrialization, in recognition of the employment-intensive nature of industry. Rising poverty in weak labour markets 50. A weak labour market pushes up the number of those in poverty. 51. In 15 of 27 EU countries where data exists, the incidence of relative poverty rose between 2008 and In ten countries, the increase was over 10 per cent. In six countries, relative poverty has fallen since 2008 by over 10 per cent. In 2015, it ranged between 13 per cent in the Czech Republic and 40.7 per cent in Bulgaria, with an EU median of 21.7 per cent. 28 In Turkey, relative poverty fell to 48 per cent in 2013, down 13 points from In the Russian Federation, the 2015 recession undermined several years of effort to reduce poverty, which is estimated to affect 13.9 per cent of the population in 2016 and 2017 (or 21 million persons). 29 Standards and rights at work A high ratification rate of international labour standards, but significant challenges of application and compliance 52. The region can be proud of its achievement in ratifying the highest number of ILO Conventions. It is the only region in which all the member States have ratified all eight of the fundamental Conventions. 53. There is also a high level of ratification of the four governance Conventions (84 per cent). The Employment Policy Convention, 1964 (No. 122), has the highest number of ratifications (all but three countries), followed by the Labour Inspection Convention, Wirtschafts- und Sozialwissenschaftliches Institut (WSI): Europäischer Tarifbericht des WSI 2015/16 (European collective bargaining report 2015/16). 28 Eurostat: News release: The share of persons at risk of poverty or social exclusion in the EU back to its pre-crisis level: Contrasting trends across Member States, 17 Oct There is no available data for Croatia. 29 Russian Federation, Ministry of Economic Development: Forecasts for , see: and World Bank: The Russian economy inches forward: Will that suffice to turn the tide?, Russia Economic Report, No. 36, Nov. 2016, Washington, DC. 11

22 What future for Decent Work in Europe and Central Asia: Opportunities and challenges (No. 81) (all but four countries), and the Tripartite Consultation (International Labour Standards) Convention, 1976 (No. 144) (all but six countries). 54. A total of 65 new ratifications of fundamental, governance and technical Conventions have been registered in the region since April 2013, reflecting the strong commitment of member States. However, significant challenges of implementation and compliance remain across the region. ILO supervisory bodies have highlighted a number of trends and challenges in the application of Conventions including, for the fundamental Conventions. 55. Freedom of association: ILO supervisory bodies have noted significant restrictions on the full exercise of freedom of association, ranging from serious obstacles to the absence of independent workers or employers organizations. But there has also been progress, with the establishment of tripartite social dialogue institutions in Eastern Europe and the Western Balkans. In the EU, policy responses to the crisis have placed serious strains on industrial relations systems, as exemplified by the discussions concerning the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98), in such countries as Greece and Ireland. 56. Non-discrimination: There are still significant challenges in almost all countries in the region for the effective application of this principle, especially with regard to gender equality, in line with the Equal Remuneration Convention, 1951 (No. 100), and the Discrimination (Employment and Occupation) Convention, 1958 (No. 111). The challenges relate in particular to pay gaps and occupational segregation. The supervisory bodies have noted a lack of measures for the full implementation of equal pay for work of equal value, a principle that is also enshrined in SDG target 8.5. The SDGs include numerous targets for the promotion of equality, and most prominently SDG 5 for the achievement of gender equality and the empowerment of all women and girls. 57. Labour inspection: Despite broad recognition of the importance of labour inspection in promoting the Decent Work Agenda, many labour inspectorates are poorly resourced and/or have limited powers of enforcement and compliance. Changes in the world of work, including the prevalence of non-standard forms of employment and the persistence of informality and undeclared work, mean that strong and effective labour inspection systems are all the more important. The ILO supervisory bodies have noted serious deficiencies in some countries in Eastern and Central Europe and in Central Asia, where severe limitations in the frequency of labour inspections and/or restrictions on the powers of labour inspectors have been introduced, including moratoria and, in one case, the abolition of the labour inspectorate altogether. 58. Child labour and forced labour: Despite notable progress in the eradication of child labour, challenges remain. The inclusion of child labour issues in macro-level policies through their integration in national development policy frameworks has proven to be an effective way of achieving progress in the reduction of child labour. In addition, several countries in the CIS+ and Western Balkans face serious issues relating to forced labour, especially during harvest periods. While estimates place the number of forced labourers at 1.6 million in the countries of Central, South-Eastern and Eastern Europe (CSEE) and the CIS+, there are also a substantial number in Western Europe (1.5 million in the EU and developed economies). In the CSEE and CIS+, forced labour is often associated with manual and agricultural labour, while in developed economies it is predominantly sexual 12

23 Labour market trends across Europe and Central Asia exploitation. 30 The region has also made rapid progress in the ratification of the Protocol of 2014 to the Forced Labour Convention, 1930, registering eight of the total 13 ratifications worldwide. SDG 8.7 establishes the goal of eliminating all forms of forced labour by Migrant workers: There are currently more migrants and refugees in the region than at any time since the Second World War. In the context of the complex migration challenges in the region, the ILO supervisory bodies have requested several European countries to provide information on the number, status and support provided to migrant women and men. The ILO s mandate is to protect the labour rights of all workers and this very much includes migrant workers, who are also referred to in SDG 8.8. Social protection and occupational safety and health (OSH) The critical stabilizing role of social protection systems, and challenges of coverage 60. The countries of the region have a long tradition of comprehensive and welldeveloped social protection systems. Social protection floors (SPFs) exist in most countries, but face differing challenges of coverage, adequacy and financial sustainability. Another issue in several countries is the inadequacy of benefit levels, which fail to ensure a decent standard of living, do not enable beneficiaries to escape from poverty and make it harder to re-enter the formal labour market by driving people into informal work. The ageing of the population and the changing world of work are placing greater pressure on the financial sustainability of social protection systems, as well as on sustainable development overall. 61. Social protection systems have played a key role in cushioning the impact of the crisis. Social protection expenditure, relative to GDP, has risen in all subregional groups since 2005, with variations between countries. These increases reflect improvements in the coverage of pensions, the expansion of targeted social assistance and the rising cost of unemployment benefits. There has been a sharp fall in expenditure on social protection in Ukraine (-6.5 percentage points of GDP), Belarus (-2.7 percentage points) and to a lesser extent in Germany (-1.1 percentage points). In contrast, there have been significant increases in Armenia, Bosnia and Herzegovina, Estonia, Finland, Ireland, Lithuania, Romania, Russian Federation and Spain. 62. Policy decisions to either expand or contract social protection spending have been observed across the region. Countries with the fiscal space to do so have often increased expenditure. Those facing pressure to trim the fiscal budget have pared back spending on social protection. 63. Expenditure levels differ significantly between Central Asia (8 per cent of GDP), CEE (16 per cent), Eastern and Central EU countries (19 per cent) and the European Union of 15 Member States (EU15) countries (27 per cent). Expenditure levels tend to be correlated with income levels and the size of the population aged 65 years and over. For instance, a high share of expenditure in Italy goes on old-age provision, while expenditure in Central Asia is mostly for low-income families. 30 ILO: Profits and poverty: The economics of forced labour (Geneva, 2014). 13